Archive for the ‘FCPA Jurisprudence’ Category

Friday Roundup

Friday, January 9th, 2015

Roundup2From the dockets, cleared, when the dust settles, outreach, and quotable.  It’s all here in the Friday roundup.

From the Dockets

Sigelman

This recent post highlighted the motion to dismiss filed by Joseph Sigelman.  Among other things, Sigelman challenged the DOJ’s interpretation and application of the “foreign official” element in regards to Ecopetrol, the alleged “the state-owned and state-controlled petroleum company in Colombia.”

On December 30th, U.S. District Judge Joseph Irenas denied the motion (as well as addressed other motions) in a 1 page order.

Hoskins

This recent post highlighted the motion to dismiss filed by Lawrence Hoskins. Among other things, the motion argued that the indictment “charges stale and time-barred conduct that occurred more than a decade ago; it asserts violations of U.S. law by a British citizen who never stepped foot on U.S. soil during the relevant time period; and, it distorts the definition of the time-worn legal concept of agency beyond recognition.”

In this December 29th ruling, U.S. District Court Judge Janet Arterton (D. Conn.) denied the motion to dismiss concluding that factual issues remain as to the disputed issues.

Cleared

Remember Kazuo Okada and Universal Entertainment Corp.  They were at the center of a boardroom battle royal with Wynn Resorts in which a Wynn sanctioned report stated:

“Mr. Okada, his associates and companies appear to have engaged in a longstanding practice of making payments and gifts to his two (2) chief gaming regulators at the Philippines Amusement and Gaming Corporation (“PAGCOR”), who directly oversee and regulate Mr. Okada’s Provisional Licensing Agreement to operate in that country.  Since 2008, Mr. Okada and his associates have made multiple payments to and on behalf of these chief regulators, former PAGCOR Chairman Efraim Genuino and Chairman Cristino Naguiat (his current chief regulator), their families and PAGCOR associates, in an amount exceeding $110,000.”  The report categorizes this conduct as “prima facie violations” of the FCPA.

Universal recently issued this release which states:

“The Prosecutor General of the Philippines has proposed to the Secretary of Justice to terminate the investigation into the groundless suspicion that our group may have offered bribes to officials of Philippine Amusement and Gaming Corporation …”.

When The Dust Settles

It is always interesting to see what happens when the dust settles from an FCPA enforcement action (see here for the prior post).

A portion of the recent Alstom enforcement action alleged improper payments in connection with power projects with the Bahamas Electricity Corporation (“BEC”), the state-owned and state-controlled power company.

According to the Nassau Guardian ”Attorney General Allyson Maynard-Gibson said The Bahamas has requested information from the US regarding the allegations, including the identity of the alleged bribe taker.”

This follow-up report states:

“Former Bahamas Electricity Corporation (BEC) board member Philip Beneby said on Tuesday he would find it hard to believe that any member of the board accepted bribes from a French power company to swing BEC contracts its way. [...] “The allegation is stating that a member of the board received some kickback, but it’s kind of strange to me that a member of the board would receive a kickback if the board unanimously agreed that the contract be awarded to Hanjung out of Korea, then only to find out later that the Cabinet overturned the board’s decision. So that decision to not award Hanjung from Korea the contract came from the Cabinet, not from the board.” According to Beneby and former minister with responsibility for BEC, Bradley Roberts, in 2000 the board of BEC unanimously voted to award a generator contract to Hanjung Co. out of South Korea, but that decision was overturned by the then Ingraham Cabinet, which decided to award the contract to Alstom (then ABB). [...] Former deputy prime minister Frank Watson was the minister at the time responsible for BEC. He said the decision to award the contract to Alstom was a Cabinet decision that involved no bribery. Watson insisted he was unaware of any claims that a bribe had been paid with respect to the award of that particular contract. Beneby, who is the proprietor of Courtesy Supermarket, said he remembers the event quite well as it was the first time a board decision was overturned.”

As explored in this prior post, many FCPA enforcement actions assume an actual casual link between alleged payments and obtaining or retaining business.  However, the reality is that such a casual link is not always present.

Outeach

This event notice from the New England Chapter of the National Defense Industrial Association caught my eye.

“FBI Seminar on FCPA and International Corruption: Outreach to Industry Education Session

Join us for an engaging morning seminar to learn how to be compliant with the Foreign Corrupt Practices Act (FCPA). The FBI’s International Corruption Unit (ICU) is conducting private sector outreach and education to support a new initiative.  The FBI recognizes the importance of forging new partnerships and strengthening existing relationships to help level the playing field for US businesses competing internationally.  By fostering better understanding of FCPA requirements, the FBI and private sector can join forces more efficiently to fight international corruption and ensure fair global markets and a strong US economy.

The FBI is excited to showcase five pillars of FCPA compliance in their program: Private Sector Outreach, Training and Education, Dedicated Personnel, Domestic and International Partnerships and Proactive Enterprise Theory Investigations.  Utilizing the five pillars approach, the FBI is gaining new momentum and expertise.

Additionally, the FBI will discuss new analysis outlining bribery hotspots and trends.  Using charts and graphs the FBI will examine the latest bribe payment techniques, who is paying bribes and who is accepting bribes.  Specific regions of the world will be discussed along with the various risks associated with doing business in these areas.

Lastly, the FBI will present a guest speaker who violated the FCPA, cooperated with the FBI and eventually was incarcerated for his crimes.  This segment will provide a unique and impactful insight into the rationalization of an employee who paid bribes, despite knowledge and training on FCPA.The FBI is looking forward to the opportunity to discuss best practices and enhance FCPA compliance with industry partners”

Quotable

This recent Forbes article ask “isn’t it strange that the U.S. gets to fine Alstom, a French company, for bribery not in the U.S.?” The article concludes:

“It’s most certainly not good economics that one court jurisdiction gets to fine companies from all over the world on fairly tenuous grounds. Who would really like it if Russia’s legal system extended all the way around the world? Or North Korea’s? And I’m pretty sure that the non-reciprocity isn’t good public policy either. Eventually it’s going to start getting up peoples’ noses and they’ll be looking for ways to punish American companies in their own jurisdictions under their own laws. And there won’t be all that much that the U.S. can honestly do to complain about it, given their previous actions.”

That is pretty much what Senator Christopher Coons said during the November 2010 Senate FCPA hearing. “”Today we the only nation that is extending extraterritorial reach and going after the citizens of other countries, we may someday find ourselves on the receiving end of such transnational actions.”

In a recent speech, Stuart Alford QC (Joint Head of Fraud at the Serious Fraud Office) addressed the following question:  ”why have there been no Bribery Act prosecutions; is this Act really being taken seriously?”  In response to his own question, Alford stated, in pertinent part:

“The Bribery Act is not retrospective. Therefore, for conduct to be criminal under the Act it has to have been undertaken after 1 July 2011. Often conduct of this type takes some time to surface; and, once it does, it takes time to investigate. SFO cases must, by definition, be serious or complex and they very often include international parties and conduct. While the SFO is always striving to investigate criminal conduct in as timely a way as possible, these types of cases will take some time to move through the process of investigation and on to prosecution.

The Bribery Act represented a very significant shift in setting the standards for the more ethical corporate culture I referred to a moment ago. When one looks at legislation of this kind, both here and abroad, one can see that a flow of prosecutions can take time to develop. We only have to look at the 1977 Foreign Corrupt Practices Act in the USA, to see that it took many years for that work to build up a head of steam, and not really until the turn of the century did we start to see the level of prosecutions that we do now.”

Spot-on and consistent with my own observations on July 1, 2011 when the Bribery Act went live.

Top Book Review

International Policy Digest recently compiled its top book reviews of 2014.  On the list is the following.

Review of Mike Koehler’s ‘The Foreign Corrupt Practices Act in the New Era’

By John Giraudo

If you care about the rule of law, ‘The Foreign Corrupt Practices Act in the New Era’ by Mike Koehler, is one of the most important books you can read—to learn how it is being eroded. Professor Koehler’s book may not make it to the top of any summer reading list, but it is a must read for people who care about law reform.

For more information on the book, see here.

*****

A good weekend to all.

“I Have Such Trouble Understanding The Facilitating Payment Exception”

Tuesday, December 9th, 2014

Southern District of Texas Judge Keith P. Ellison.  HANDOUT.

In the minds of some, the Foreign Corrupt Practices Act is a clear statute with no ambiguity whatsoever (see here for a prior post on the same subject).  To such commentators, it’s easy –  just don’t bribe.  (The irony of course is that if it was so easy, then why do many of these same commentators devote their practice to FCPA compliance?).

To suggest that the FCPA is an ambiguous statute has been met by claims that such statements are nothing more than pandering to a particular audience.

Well, federal court judges are apparently pandering to a particular audience because if there is one common thread in many FCPA judicial decisions, it is judges finding various FCPA provisions vague or ambiguous.  (See the above prior post for numerous examples).

The latest example occurred in SEC v. Jackson & Ruehlen (the individual enforcement action the SEC settled on the eve of trial this past summer in what could only credibly be called an SEC defeat – see here and here for prior posts).

As to relevant background, in a pre-trial ruling (see here for the prior post), Judge Keith Ellisson (S.D.Tex.) ruled that the SEC had the burden of negating application of the FCPA’s facilitating payment exception.  As noted in this prior post, the enforcement action focused on alleged payments in connection with temporary importation permits in Nigeria for oil rigs.

Deep within the pre-trial transcript (see here), one will find Judge Ellison engage in the following exchange with SEC counsel.

JUDGE:  I have such trouble understanding the facilitating payment exception.  [...] I mean, it almost swallows the rest of the statute.  And I know it’s in the legislative history that these, I think reference is made to grease payments, somehow to grease the skids.  How do I separate those payments, which do seem to be contemplated, from the payments that [the SEC] alleges were made in this case, which you think are squarely within the FCPA’s prohibition?  [...] And I don’t understand it.  Whether we make the distinction based on size of payments, regularity of payments, purpose of payments, nature of the — of the favorable conduct elicited.  I just really struggle with it.”

SEC:  [...] For the — for the exception to apply, the SEC’s position is that two elements must be met.  There must be a purpose to expedite an act and the act must be a routine government action within the meaning of the statute.

JUDGE:  Both those could apply to the temporary — to the temporary import, though, couldn’t it?

SEC:  Well, in what way, Your Honor?

JUDGE: Well, because it purpose was to expedite an act and it was a routine government action.  These import permits were granted all the time.

Elsewhere in the transcript, one will find Judge Ellison expressing concern about the SEC’s position that the defendants violated the FCPA’s books and records provisions because Noble Corp. booked the alleged bribe payments in a special facilitating payments account based on the good faith belief that they were indeed facilitating payments.  The following exchange occurred.

JUDGE:  You also argue that recording the payments as facilitating payments in the company’s book is essentially duplicative or duplicitous.  Would payments to government officials, just say to that, like so, would that be accessible?

SEC:  Your honor, these payments were recorded as a particular kind of payment, a lawful payment.  A payment that meets a legal exception to liability under the FCPA.  As this Court recognized in the motion to dismiss opinion, calling a payment something that it is not is false.

JUDGE: What would they have needed to call it?  That’s what I am asking?

SEC:  Payments to government official — I can’t speculate all the things that it possibly could have been called, but payments to government officials may have been – may have been adequate.  However, they weren’t designated payments to government officials in this case …

Elsewhere in the transcript, the SEC acknowledged that the facilitating payments exception is “a difficult area to understand, largely because of the wording of the exception and the statute overall.”  The following exchange occurred.

SEC: This is how we conceptualize it.  And I think it’s — and it’s clearly evidenced and its manifest in the words of the statute and the exception.  Now, the facilitating payment exception is exactly that. It’s an exception for government actions that are routinely or ordinarily carried out. And you’ll see in the — in the exception itself, a number of examples that Congress set out as — as possible facilitating payment – facilitating payments and government — routine government actions. [...]

JUDGE: In your mind, does “routine” mean frequent or does “routine” mean automatic or does “routine” mean both?

SEC: I think that’s a fact issue, Your Honor. I think there could be situations where a routine governmental action can be something automatic. I think there can be situations where a — a routine governmental action is something that is issued or granted by a government entity or official routinely, so frequently, or without exception.

JUDGE: Well, I’m trying to identify which of the those things.  I mean, what if it were routine but not consistent; or automatic but not routine, it only happened once every five years?

SEC:  [...] Now, what’s important here is that the SEC posits whether a particular action is a routine governmental action is an objective inquiry.  You just take a look at the Nigerian law that governs this particular action.  If the Nigerian law says that it’s nondiscretionary, that’s the end of the inquiry.

JUDGE: Well, that’s what I trying to identify.  The fact that it’s nondiscretionary.  Do you think — do you agree with that?

SEC: No, Your Honor.

JUDGE:  Tell me what the lynchpin is?

SEC: The lynchpin is, again, it’s a fact-intensive inquiry.  What did the defendants – all right – what did the defendants believe was the action here?  And the action here was in — again, tying to the specific — specific facts of this case, the action was applying for temporary import authorizations that had, prior to the relevant period in this case, had been routinely granted.

JUDGE: Meaning — meaning consistently?

SEC: Consistently, to our — to our knowledge, without exception.

JUDGE:  Consistently and frequently?

SEC:  Yes

JUDGE:  Okay.

SEC:  Every — every time an application was put in, they received the authorization.

JUDGE: And those — to the best of your knowledge were those applications put in without — without any further monetary inducement or were they accompanied by monetary inducement?

SEC:  Accompanied by monetary inducement; hence, the payment itself, the facilitating payment, for a government action that was routinely rendered.

JUDGE: So the government would grant these routinely if it was paid?

SEC:  Well, Your Honor, we don’t know whether — we don’t necessarily know whether they were — whether they would have been granted if — if a payment had — payment had not been made, but what — what matters here is the payments were made –

JUDGE:  Isn’t that a big difference, though?  If it would have been granted anyway, without a payment being made, isn’t that signficant?

SEC:  I don’t think so, Your Honor.

In short, while many FCPA commentators continue to believe that the FCPA is a simple, straight-forward statute (and that claims of vagueness and ambiguity are the stuff of sugar plums and tinkerbells), the above example is just the latest of many (and please do visit this prior post for the numerous other examples) where federal court judges remain confused about various aspects of the FCPA.

A Comprehensive FCPA Resource

Wednesday, November 5th, 2014

The question was recently asked: ”will there ever be a classic treatise on the FCPA?”New Era

According to Webster’s, a treatise is a book, article, etc., that discusses a subject carefully and thoroughly.

With that definition in mind, I invite you to consider my new book “The Foreign Corrupt Practices Act in a New Era.”  Inside you will find:

  • A thorough telling of the story of the FCPA told largely through original voices of actual participants who shaped the pioneering law;
  • Foundational knowledge (such as DOJ and SEC policy and resolution vehicles and the realities of the global marketplace) that best enhance understanding and comprehension of specific FCPA topics;
  • A comprehensive analysis of the FCPA’s anti-bribery provisions and for each element, exception or affirmative defense discussion of all legal sources of authority (including all relevant substantive FCPA judicial decisions) as well as non-legal sources of information (including discussion of over 70 FCPA enforcement actions);
  • Discussion of other legal issues also relevant to FCPA enforcement;
  • A comprehensive analysis of the FCPA’s books and records and internal controls provisions including legal authority as well as non-legal sources of information;
  • Analysis of the typical origins of FCPA scrutiny and enforcement;
  • Discussion of FCPA settlement amounts, how they are calculated, and analysis of legal and policy issues relevant to settlement amounts;
  • Discussion of FCPA sentencing issues, how sentences are calculated, and an analysis of legal and policy issues relevant to sentencing decisions;
  • An extended discussion and analysis of an often overlooked topics, “FCPA Ripples,” and how settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement;
  • An exploration of practical and provocative reasons for the general increase in FCPA enforcement during this new era including a discussion of FCPA Inc. and the business of bribery;
  • Identification and discussion of FCPA compliance best practices and benchmarking metrics; and
  • An in-depth discussion and analysis of FCPA reform designed to ensure that the FCPA is best achieving the original goals of the law and that FCPA enforcement is transparent and consistent with rule of law principles.

Whether the above topics highlighted and explored in “The FCPA in a New Era” make it a classic treatise, well, I invite you to come to your own conclusion.  At the very least, you will have to agree that the cover of the book is more inviting than a typical treatise.

While I am certainly not going to ascribe labels to my own work, I am pleased to share what others have said about “The FCPA In a New Era.”

Michael Mukasey, former U.S. Attorney General

“Professor Koehler has brought to this volume the clear-eyed perspective that has made his FCPA Professor website the most authoritative source for those seeking to understand and apply the FCPA. This is a uniquely useful book, laying out systematically the history and rationale of the FCPA, as well as its evolution into a structure governed as much by lore as by law. It will be valuable both to those who counsel international corporations, whether in connection with immediate crises or long-term strategies; and to those who contemplate what the FCPA has become, and how it can be improved.”

Professor Daniel Chow, The Ohio State University Moritz College of Law

“This is the single most comprehensive academic treatment of the Foreign Corrupt Practices available. Professor Koehler’s book will become the authoritative standard for the field. The book not only treats the history of the FCPA, but analyzes the statute’s elements in detail, discusses current cases, and makes proposals for reforms where the current law is deficient. The book is written in a clear, accessible style and I will use it often as a resource for my own scholarly work.”

 Richard Alderman, former Director of the UK Serious Fraud Office

“An excellent and thought-provoking book by a great expert. Backed up by rigorous analysis of cases, Professor Koehler constantly challenges those involved in anti-corruption work by asking the question ‘why?’ He puts forward many constructive and well-argued suggestions for improvements that need to be considered. I have learned a lot from Professor Koehler over the years and I can thoroughly recommend this book.”

Thomas Fox, FCPA Compliance and Ethics Blog and FCPA Practitioner

“The Foreign Corrupt Practices Act in a New Era” should become one of the standard texts for any FCPA compliance practitioner, law student studying the FCPA or anyone else interested in anti-bribery and anti-corruption. It should be on your FCPA library bookshelf.”

Barry Vitou, thebriberyact.com and Compliance Practitioner

“If you only read one book on the US FCPA, read this one. [...] Mike Koehler’s new book is probably the best book we’ve read about the FCPA. [...] For those wanting a pair of ‘FCPA goggles’ no book is, in our opinion, better.”

To order a hard copy of the book, see here and here; to order an e-copy of the book, see here and here.

For media coverage of the book including Q&A’s, see here from Corporate Counsel, here from Global Investigations Review, and here from Corporate Counsel Weekly.

*****

Looking for even more information and analysis of the FCPA and FCPA enforcement?

I invite you to all also consider the following year in review articles.  Granted the below articles are not found between two covers, but you will find approximately 500 pages of FCPA statistics, trends and analysis over time.

For 2013, see here.

For 2012, see here.

For 2011, see here.

For 2010, see here.

For 2009, see here.

An FCPA Enforcement Action With Many Interesting Wrinkles

Wednesday, August 27th, 2014

[This post is part of a periodic series regarding "old" FCPA enforcement actions]

The 1998 Foreign Corrupt Practices Act enforcement action against Saybolt Inc., Saybolt North America Inc. and related individuals had many interesting wrinkles:  a unique origin; a rare FCPA trial; a fugitive still living openly in his native land; and case law in a related civil claim.

As to the unique origin, Saybolt Inc. was a U.S. company whose primary business was conducting quantitative and qualitative testing of bulk commodities, such as oil, gasoline, and other petrochemicals, as well as grains, vegetable oils and other commodities.  The Environmental Protection Agency, Criminal Investigation Division (“EPA-CID”) was investigating the company for allegedly submitting false statements to the EPA about the oxygen content of reformulated gasoline blended in accordance with the requirements of the Clean Air Act.  The investigation was initiated by reports of data falsification at Saybolt’s Massachusetts facility.

During the course of the investigation EPA-CID interviewed Steven Dunlop (the general manager for Latin American operations for Saybolt) who provided the following information.

During a trip to Panama in 1994, Dunlop was advised of new business opportunities that were being offered to Saybolt Panama through the Panamanian Ministry of Commerce and Industries.  Specifically, the DOJ’s criminal complaint alleged that Hugo Tovar (the General Director of the Hydrocarbon Directorate, a division of the Ministry of Commerce and Industries) and Audo Escudero (the Sub-Director of the Hydrocarbon Directorate), offered to Saybolt Panama an opportunity to: (1) receive a substantial reduction in Saybolt Panama’s tax payments to the government of Panama; (2) obtain lucrative new contracts from the government of Panama; and (3) secure a more permanent facility for Saybolt Panama’s operations on highly coveted land near the Panama Canal.  According to the criminal complaint, this parcel of land was coveted because Saybolt Panama “only had a tenuous legal claim on its existing facility” and as a result its operations were continually at risk.

The complaint details various communications between Dunlop and David Mead (the President and CEO of Saybolt) in which Dunlop informed Mead of a $50,000 “fee” that would be needed to accomplish the above opportunities.

The complaint details a 1995 board of directors meeting at Saybolt during which discussion concerned the “$50,000 payoff demanded by the Panamanian officials with whom Saybolt was negotiating.  According to the complaint, present at this meeting were Board members Frerik Pluimers and Philippe Schreiber as well as Mead and Saybolt’s Chief Financial Officer Robert Petoia.  According to the complaint, Dunlop received instructions from Mead that he was to “take the necessary steps to ensure that the $50,000 was paid to the Panamanian officials in order to secure the deal” and that Schreiber was to be his primary contact on all issues concerning the Panamanian transaction.

According to the complaint, “in the minutes leading up to the time he was scheduled to leave his house for the airport” to travel to Panama,” Dunlop had a telephone conversation with Schreiber who advised him “that the action [he] was about to take would constitute a violation of the FCPA.”

According to the complaint, while in Panama Dunlop “learned that the Saybolt funds needed to make” the payment had not yet been received and that Dunlop then tried to contact Mead.  According to the complaint, Mead sent Dunlop an e-mail which stated: “Per telecon undersigned and capo grande Holanda the back-up software can be supplied from the Netherlands.  As previously agreed, you to detail directly to NL attn FP.” According to the complaint, “capo grande Holanda” was a reference to Pluimers (the President of the Dutch holding company that controlled Saybolt, Inc.” and the “back-up software” was a reference to the $50,000 payment.”

The complaint alleged that the funds never arrived in Panama and that Dunlop was receiving pressure from the Panamanian officials “to make the $50,000 payment prior to the upcoming Christmas holidays.”  According to the complaint, Mead told Dunlop on a telephone call to make the $50,000 payment using funds that were in the operating account of Saybolt Panama.

According to the complaint, the $50,000 in cash was obtained by laundering a check through a local construction company and that a “sack full of currency” was handed over to Escudero at a bar in Panama City by the individual who was serving as Saybolt Panama’s liaison with Escudero.  Further, according to the complaint, “shortly after this payment was made, the Ministry of Commerce and Industries and other necessary government agencies acted favorably on Saybolt’s proposal.”

In April 1998, the DOJ filed this indictment against Mead (a citizen of the U.K. and resident of the U.S. and Pluimers (a national and resident of the Netherlands) based on the above conduct.  The indictment charged Mead and Pluimers with conspiracy to violate the FCPA’s anti-bribery provisions and the Travel Act, two substantive violations of the FCPA, and two substantive violations of the Travel Act.

According to the indictment, the purposes and objectives of the conspiracy were:

  • To obtain contracts for Saybolt de Panama and its affiliates to perform import control and inventory inspections for the Ministry of Hydrocarbons, and the Ministry of Commerce and Industries, both departments of the Government of the Republic of Panama;
  • To obtain and to expedite tax benefits for Saybolt de Panama and its affiliates from the Government of the Republic of Panama, including exemptions from import taxes on materials and equipment and reductions in annual profit taxes;
  • To obtain from an agency of the Government of the Republic of Panama a secure and commercially attractive operating location for an inspection facility in Panama; and
  • To “lock out” Saybolt’s competitors by retaining possession and control of Saybolt de Panama’s existing location in Panama.

In September 1998, the DOJ filed this superseding indictment substantially similar to the first and including the same charges.

Mead moved to strike the indictment of allegations that he violated the FCPA and for dismissal of the indictment for failure to state an offense under the Travel Act, and for a Bill of Particulars.   In a one page order, U.S. District Court Judge Ann Thompson denied the motions. Dunlop was given full immunity as was the American attorney present at the board meeting and involved in several conversations with Pluimers, Mead, and Dunlop concerning the alleged payments.

Mead argued that the FCPA only prohibited payments to assist a domestic concern in obtaining and retaining business” and he used Saybolt’s rather complex corporate structure to argue that the business sought to be obtained or retained was for a different Saybolt entity, not a domestic concern.  In his motion, Mead stated “because the government ignores the corporate legal structure and does violence to the FCPA by attempting to end-run congressional policy, the Court must justifiably refuse.”  Elsewhere, the motion stated:

“Whether the government labels foreign corporations as ‘agents of a domestic concern’ or members of an ‘unincorporated organization,’ the government still may not manipulate the Act’s broad language to end-run this congressional policy (of deliberately excluding both foreign subsidiaries and non-subsidiary foreign corporations from FCPA liability).”

The motion also argued that the indictment was devoid of any allegation that Mead acted “willfully” (i.e. with the specific intent to violate the law) because he followed the legal advice of counsel in making the alleged payments.

In response, the DOJ stated that the indictment “describes in detail how Mead – himself a U.S. resident, and also the President of one U.S. corporation (Saybolt Inc.), Executive Vice-President of a second U.S. corporation (Saybolt North America Inc.), and Chief Executive Officer of an unincorporated association (Saybolt Western Hemisphere) – and others decided to send a Saybolt Inc. employee to Panama City, Panama, to oversee the payment of a $50,000 bride, which they believed would be provided to high level government officials, in exchange for favorable treatment of Saybolt’s business interests in Panama.  The Indictment charges that Mead gave the order to go forward with the bribe and it details the contents of the e-mail message that Mead sent from his office in New Jersey to the Saybolt employee in Panama City.”

At trial, Mead argued that the Government failed to meet its burden of proof and that he acted in good faith belief that the payment to the Panamanian officials was lawful.  The relevant jury instructions stated as follows.

“If the evidence shows you that the defendant actually believed that the transaction was legal, he cannot be convicted.  Nor can he be convicted for being stupid or negligent or mistaken.  More is required than that.  But a defendant’s knowledge of a fact may be inferred from “willful blindness” to the knowledge or information indicating there was a high probability that there was something forbidden or illegal about the contemplated transaction and payment.  It is the jury’s function to determine whether or not the defendant deliberately closed his eyes to the inferences and the conclusions to be drawn from the evidence here.”

According to this docket sheet, Mead’s trial occurred in October 1998 and he was found guilty of all charges.  According to the docket, Mead was sentenced to four months imprisonment, to be followed by four months of home confinement, to be followed by three years of supervised release.  According to the docket, he was also ordered to pay a $20,000 criminal fine. After sentencing, US Attorney Donald Stern of Boston, stated: ”This sentence puts American executives on notice there will be a price to pay, far more than the monetary cost of the birbe, when they buy off foreign officials.”  For additional reading on Mead’s case, see this transcript of an in-depth CNN story about Mead that aired in 1999.

What about Pluimers?

As indicated by this docket sheet, there has been no substantive activity in the case since 1999 and Pluimers remains a fugitive – albeit living openly in his native Netherlands.  According to this 2011 New York Times article citing a Wikileaks cable, “Pluimers simply has too much influence with high-ranking Dutch officials to be handed over to U.S. authorities.”

What about Saybolt?

In August 1998, the DOJ the filed two separate criminal informations against Saybolt Inc. and its parent corporation Saybolt North American Inc. The first information charged Saybolt with conspiracy and wire fraud related to the company’s “two year conspiracy to submit false statements to the EPA about results of lab analyses. The second information charged Saybolt and Saybolt North America with conspiracy to violate the FCPA and one substantive charge of violating the FCPA.

As noted in this plea agreement, Saybolt agreed to plead guilty to all charges in the informations and agreed to pay a total fine of $4.9 million allocated as follows:  $3.4 million for the data falsification violations and $1.5 million for the FCPA violation. Saybolt also agreed to a five year term of probation.

The conduct at issue in the Saybolt and related enforcement actions also spawned a related civil malpractice action alleging erroneous legal advice by counsel regarding the above-described payments to Panamanian officials.  In Stichting v. Schreiber, 327 F.3d 173 (2d Cir. 2003), the Second Circuit analyzed whether a company, in pleading guilty to FCPA anti-bribery violations, acknowledged acting with intent thus undermining its claims that the erroneous legal advice was the basis for its legal exposure.

The court stated:

“Knowledge by a defendant that it is violating the FCPA – that it is committing all the elements of an FCPA violation – is not itself an element of the FCPA crime.  Federal statutes in which the defendant’s knowledge that he or she is violating the statute is an element of the violation are rare; the FCPA is plainly not such a statute.”

The court also stated concerning “corruptly” in the FCPA:

“It signifies, in addition to the element of ‘general intent’ present in most criminal statutes, a bad or wrongful purpose and an intent to influence a foreign official to misuse his official position.  But there is nothing in that word or anything else in the FCPA that indicates that the government must establish that the defendant in fact knew that his conduct violated the FCPA to be guilty of such a violation.”

The 193 Meanings of “Foreign Official”

Thursday, June 26th, 2014

By most measures, there are 193 countries in the world.

According to the 11th Circuit’s recent “foreign official” ruling (see here), the FCPA’s key “foreign official” element can have 193 different meanings.

As previously highlighted, the key language from the opinion is as follows.

“An ‘instrumentality’ [under the FCPA] is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own. Certainly, what constitutes control and what constitutes a function the government treats as its own are fact-bound questions. It would be unwise and likely impossible to exhaustively answer them in the abstract. [...] [W]e do not purport to list all of the factors that might prove relevant to deciding whether an entity is an instrumentality of a foreign government. For today, we provide a list of some factors that may be relevant to deciding the issue.

To decide if the government ‘controls’ an entity, courts and juries should look to the foreign government’s formal designation of that entity; whether the government has a majority interest in the entity; the government’s ability to hire and fire the entity’s principals; the extent to which the entity’s profits, if any, go directly into the governmental fisc, and, by the same token, the extent to which the government funds the entity if it fails to break even; and the length of time these indicia have existed.

[...]

We then turn to the second element relevant to deciding if an entity is an instrumentality of a foreign government under the FCPA — deciding if the entity performs a function the government treats as its own. Courts and juries should examine whether the entity has a monopoly over the function it exists to carry out; whether the government subsidizes the costs associated with the entity providing services; whether the entity provides services to the public at large in the foreign country; and whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”

In sum, the key concepts according to the 11th Circuit in analyzing whether a seemingly commercial enterprise is in fact an “instrumentality” of a foreign government such that its employees are “foreign officials” are control and function.

Yet how is a business organization competing in good-faith in the global marketplace supposed to find answers to these concepts?

The 11th Circuit thinks it will be easy as the court stated:

“We think it will be relatively easy to decide what functions a government treats as its own in the present tense by resort to objective factors, like control, exclusivity, governmental authority to hire and fire, subsidization, and whether an entity finances are treated as part of the public fisc.  Both courts and businesses subject to the FCPA have readily at hand the tools to conduct that inquiry (especially because the statute contains a mechanism by which the Attorney General will render opinions on requests about what foreign entities constitute instrumentalities.”

However, is it really that easy?

I trouble to envision a general counsel or chief compliance officer of a company charged with approving expenditures of things of value in connection with a business purpose (and let’s face it, companies do this all the time in the global marketplace as to certain customers and prospective customers) ever finding answers to certain issues identified by the 11th Circuit as being relevant.

The 11th Circuit’s suggestion to the contrary is somewhat comical.  Does the 11th Circuit envision the following?

  • General Counsel / Chief Compliance Officer:  Pardon me Company A, can you tell me how your principals are hired and fired?
  • General Counsel / Chief Compliance Officer:  Excuse me Company B, but do your profits go directly into the government fisc?  A follow-up if I may – does the government subsidize your operations?  And if so, for how long?

As to the FCPA’s Opinion Procedure program, seemingly lost on the 11th Circuit is that it often takes months for a business organization to receive an answer from the DOJ.  For this reason, among others, the FCPA Opinion Procedure program has been routinely criticized.  As noted in the OECD’s 2010 review of FCPA enforcement:

“So far, the FCPA Opinion Procedure has been used very little by the private sector to obtain DOJ advice on prospective transactions. […] The non-governmental participants in the on-site meetings cited several reasons for the infrequent use of the Opinion Procedure. For instance, legal and private sector representatives felt that the Opinion Procedure is only useful in limited situations where the prospective fact situation is narrow and not going to change. They also find that the response time, which is 30 days after the request is complete, is too long in certain situations, such as entering joint ventures and mergers and acquisitions, where a company normally needs to make decisions relatively quickly. […] The most pervasive concern of the private sector representatives was that availing themselves of the Opinion Procedure could expose them to potential enforcement actions by the DOJ, as well as provide competitors with information about their prospective international business activities.”

Moreover, a significant irony of the 11th Circuit’s resort to foreign characterization and treatment of a seemingly commercial enterprise is that the DOJ itself has rejected this approach in issuing opinions under the FCPA Opinion Procedure program.

For instance in Release 94-01 the Requestor disclosed that its “foreign attorney has advised that under the nation’s law, the individual [at issue] would not be regarded as either a government employee or a public official.”  However, the DOJ stated that “the foreign attorney’s opinion is not dispositive” and the DOJ “considered the foreign individual to be a ‘foreign official’ under the FCPA.”

Even the 11th Circuit noted that it will be a “difficult task – involving divining subjective intentions of a foreign sovereign, parsing history, and interpreting significant amounts of foreign law – to decide what functions a foreign government considers core and traditional.”  Moreover, the 11th Circuit recognized ”there may be entities near the definitional line for ‘instrumentality’ that may raise a vagueness concern.”

Yet, the end-result of the 11th Circuit’s decision is that “foreign official” – a key element of the FCPA – may mean 193 different things.

Some may be thinking that this entire post has been wasted ink because the meaning of “foreign official” matters only to those intent on engaging bribery. Such a position is off-base as the meaning of “foreign official” matters for a number of reasons as will be explored in a future post.